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Tuesday, 23 Dec 2008
Oil Drops Sharply Amid End of Year Trading
Trading in Crude Oil has been extremely volatile in the past 24 hours due to limited market liquidity and fewer market participants. The price has dropped over 8% ahead of the holiday break. This is creating excellent opportunities for traders to come into the market on a high price swing.
USD - Light Trading Brings Volatility to the Dollar
The light trading that is typical during the close of the year is having an impact on the movement of the Dollar. National holidays in Japan have significantly limited the amount of liquidity in the forex market, while the approaching holidays in the U.S. has left trading desks working on a skeleton staff. This has led the EUR/USD to trade in large price swings lately due to the limited amount of players increasing the pair's volatility.
At one point in yesterday's trading, the Dollar reached as low as 1.3923. Despite the difficult market conditions the Dollar finished the day relatively unchanged at 1.3978. Against the GBP, the USD ended yesterday's trading session nearly unchanged to close at 1.4829. There was also relatively little movement in USD/JPY as the pair closed the day at 90.23. Analysts emphasize that large movements in these currency pairs are unlikely to occur until after the holiday season.
Today, investors can look for more fundamental data that may help drive the Dollar lower. The U.S. Existing Home Sales and New Home Sales are due to be released today at 3:00pm GMT. If these figures continue the trend of a poor performing U.S. housing sector, look for the EUR/USD to climb to the 1.4150 level.
EUR - EUR Continues to Rise against the Dollar
As the year end approaches, the repatriation of capital has been occurring in the European market. The deleveraging by U.S. investors in September and October heavily influenced short-term price movements in the commodity and currency markets. There is a strong possibility that the repatriation of the EUR has been undertaken by large European investors as the year end approaches. This may have been a driver for many of the large price spikes that were seen in the past week of volatile trading.
The repatriating EUR may help to solidify the rally that the EUR/USD saw last week as the pair climbed as high as the 1.4600 mark. Since last Thursday though, the pair has traded around the 1.39-1.40 level. Against the GBP, the EUR has hit record levels in recent weeks. Looking ahead, it is likely that the EUR/GBP pair hold between 0.94-0.95 ranges as the EUR holds onto to its recent gains against the Cable.
Later today, European Central Bank President, Jean-Claude Trichet is due to talk about the current economic situation in Europe later today. Traders shouldn't expect to see sharp market movements following the President's speech. The EUR may consolidate its appreciation from last week, possibly through the end of the week and the holiday break.
JPY - Yen Holds its Strength Despite Bleak Economic Outlook
The Yen may have begun to reverse its recent rise against the Dollar, but during trading yesterday the pair was relatively unchanged. This comes as a change to recent market events that saw the Yen climb to a 13-year high against the Dollar in the previous week of trading. Yesterday, the USD/JPY ended the day down slightly at 90.23. The low volatility was due the closure of Japan's markets, due to the emperor's birthday.
The previous week was highlighted by two significant Interest Rate Cuts. The first was in the U.S., which sent rates near to 0%, and as a result the Yen saw a sharp appreciation vs. the USD. Later in the week, the Bank of Japan responded by lowering its rates to 0.10%. Following the Japan's rate cut, the Yen showed a slight turn around, helping the Yen rise to the 90 Yen mark.
The continued strengthening of the Yen remains a concern for the Japanese economy. This is reflected by the government expressing its displeasure of the strong Yen. In recent statements, the government revealed that the economic outlook will continue to be bleak deep into 2009, and Japan's economic woes are likely to become more severe as the economic crisis deepens. Therefore, only a much weaker Yen may recue Japan's economy in the coming months.
Oil - Oil Plunges to Below $40 a Barrel
Crude Oil prices slid yesterday, approaching a four-and-a-half year low as the recent record production cuts from the Organization of the Petroleum Exporting Countries (OPEC) failed to spark a rally in the price of Crude Oil last week. The price of Crude ended the day at 39.71, and appeared to be holding below the $40 mark, a big psychological barrier. This marks a drop of nearly $4.50 a barrel, one of the biggest daily price drops of Oil in months.
Traders have shrugged off any type of support in the market for Oil, as the global recessions continues to worsen. This in turn has driven the price of Crude lower. Two large production cuts by OPEC, volatile equity markets, and poor fundamental data have failed to boost the price in recent trading days. The price of Crude Oil is likely to remain below the $40 mark until after the U.S. holiday season.
The pair has been traded around the 1.40 levels during yesterday's trading session without making a significant breach. Yet now, a bearish cross on the hourly chart's Slow Stochastic indicates that a bearish move is forthcoming. Daily chart's Slow Stochastic is negatively sloped also supporting this notion. Going short appears to be the right choice today.
Lately, this pair has been going through a relatively choppy trading session and seems to be unable to pick up a sustained trend. The 4-hour chart's Bollinger Bands are widened and its Slow Stochastic flows in a neutral territory. Forex traders are advised to wait for a clearer signal before entering the market n this pair.
The pair has been range-trading for a while now, with no specific direction. Hourly chart's Slow Stochastic providing us with mixed signals. 4 hour chart does not provide a clear direction as well. Traders are advised to wait for a clearer signal on the hourly level before placing orders today.
The typical range trading on the 4 hour chart continues. Both the hourly RSI and the Slow Stochastic are floating in neutral territory. However, the daily chart RSI is already floating in the oversold territory. It appears that the next move might be a bullish one. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The Wild Card
Oil prices are once again dropping, and a barrel of Oil is currently traded at around the 39 price level. And now, all oscillators on the hourlies chart are giving bullish signals, indicating that oil prices might go up. This might give forex traders a great opportunity to enter a very popular trend.
|11:00||EUR||German Factory Orders||m/m||3.3%||-0.4%||-|
|13:30||USD||Non-Farm Employment Change||204K||180K||-|
|13:30||USD||Average Hourly Earnings||m/m||0.1%||0.2%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|14:55||USD||Prelim UoM Consumer Sentiment||75.1||76.2||-|
|14:55||USD||Prelim UoM Inflation Expectations||2.9%||-||-|
|20:00||USD||FOMC Member Evans Speaks||*||*||*|